Securities Regulation and Household Stock Market Participation

• In Event: Securities Regulation - II

Abstract

We examine the effect of strengthening and harmonizing securities regulation on households’ willingness to participate in the stock market. Using a novel measure of participation based on national accounts, we analyze the effects of two key directives in the European Union (EU) aimed at reducing market abuse and increasing consumer protection. Our identification strategy exploits the fact that, for plausibly exogenous reasons, EU countries adopted these directives at different points in time. We find significant increases in stock market participation both when a household’s own country adopts the regulation and when other countries adopt the regulation. An additional cross-country analysis indicates that regulation can serve as a substitute for trust. Overall, our results show that changes in securities regulation can increase stock market participation, particularly in countries where trust in others is low, and that the adoption of regulation in one country can affect households in another country.

Authors

• Hans Bonde Christensen, The University of Chicago

• Mark G Maffett, The University of Chicago

• Lauren Vollon, Chicago Booth